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The Supreme Court will rule on the prices of hospitals, the standalone facilities most at risk, the report said

Vaseline 4 weeks ago

India’s Supreme Court will rule this month on standardizing reimbursement structures for private hospitals. The proposed fees are based on the Clinical Establishment Rules of 2012, with the aim of reducing patient bills and bridging the gap in treatment costs between public and private institutions. However, analysts warn that implementing uniform pricing could be difficult and could negatively impact smaller hospitals.

While the central government is trying to discuss the issue with state authorities, industry experts are of the view that standardizing prices is impractical due to the vast differences in hospital infrastructure, equipment, staff expertise and complexity of diseases treated.

A recent analysis by BNP Paribas Securities shows that price regulation could have a disproportionate impact on independent hospitals, whose profit margins are already small. The report, written by analyst Tausif Shaikh, predicts possible ceilings on room rents, which will impact hospital chains with higher average revenue per occupied bed (ARPOB).

Despite these concerns, the verdict is unlikely to derail the long-term growth of India’s hospital sector, the report said. Following the court announcement, Indian hospital stocks took a hit, falling over 10% between February 27 and March 4, 2024. While most stocks have recovered, the analyst believes there is potential for further revaluation within the sector as a result of improving conditions. bed occupancy rate and a steady expected growth in average turnover per occupied bed (ARPOB) of 5-6% in the coming years.

The recent stock market correction caused by fears of standardized pricing has largely subsided, Shaikh said. Analysts remain optimistic about the sector, citing improving occupancy rates, steady ARPOB growth and hospital network expansion.

BNP Paribas maintains its preference for Indian hospitals over pharmaceutical and diagnostic companies. The report states that the current growth of the pharmaceutical industry is driven by temporary opportunities, while diagnostics faces increasing competition. Apollo Hospitals specifically receives a ‘Top Pick’ recommendation, with analysts expecting stable growth and improvement in occupancy rates in the coming years.

The report also highlights the government’s recent focus on improving healthcare accessibility through higher consultation fees, room rates and procedure fees under the Central Government Health Scheme (CGHS). This approach prioritizes expanding access to health care within government programs rather than regulating prices in the private sector.

Analysts further emphasize the government’s recognition of hospital differentiation based on infrastructure, staff quality and location. The report cites as examples different CGHS price lists in different states and differences between NABL-accredited and non-accredited hospitals. Moreover, the continued rise in foreign direct investment (FDI) in Indian hospitals reflects investor confidence in stable growth. However, an unfavorable Supreme Court ruling could jeopardize expansion plans for large corporate hospitals.

The Supreme Court’s upcoming ruling on hospital prices has significant implications for both patients and providers. While ensuring affordable care remains a key concern, the need to balance affordability with industry growth and service quality poses a complex challenge, the report said.